LOM Market Reports

Earnings Season Appears to Be the Best Since 2011

Yes, strong numbers were expected. But 78% of firms that have reported have beaten estimates!
More than 27% of the companies in the Standard & Poor’s 500 index have reported first-quarter results, and this is shaping up to be the best earnings season in nearly six years. But the not-so-good news: This stellar showing is anticipated by the market.

A whopping 78% of companies that have reported have beaten profit estimates — from Bank of America (ticker: BAC) and Morgan Stanley (MS) to Caterpillar (CAT) and McDonald’s (MCD) — while only 16% have fallen short of their marks. Both these numbers are better than the longer-term averages, which have typically seen 64% of companies beating estimates and 21% missing, says David Aurelio, an earnings analyst at Thomson Reuters I/B/E/S.

The shine isn’t limited to the bottom line, either. About 64% of companies have beaten their revenue forecasts, while 36% have fallen short. These are also better than historical benchmarks: Since 2003, an average 59% have beaten revenue targets while 41% have fallen short, Aurelio notes.

Energy stocks are expected to see first-quarter profits jump 558% from a year ago, while earnings for financial stocks are on pace to rise 19%.

• The first quarter’s 11.4% profit growth is corroborated by robust revenue expansion of about 6.9%. “That’s a good sign that the growth is sustainable” Aurelio says. In comparison, back in late 2014, per-share profits grew 7% year-over-year but revenues ticked up just 2.1% — a warning sign that eventually gave way to the earnings recession that began in 2015.

• Analysts’ forecasts for 2017 and 2018 also seem to factor in an effective tax rate of about 27%, while President Trump has promised to cut corporate taxes to as low as 15%. “You can say that many analysts have not yet factored in tax reform,” Aurelio says.

• Growth is especially strong in some segments, including semiconductor equipment, where first-quarter profits are projected to jump 106%, and in semiconductors, whose profits are expected to grow 43.5%. This can be traced to the big ongoing change in memory-chip technology and the ramp-up in the smartphone super-cycle, Aurelio adds, and it bodes well for the technology sector. On Tuesday, the Nasdaq Composite Index reached 6,000 for the first time. It closed at 6,025.49.

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